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When consultants told LuLaRoe they could no longer afford to spend tens of thousands of dollars building an inventory of its merchandise, the clothing company offered several solutions, including that women max out their credit cards, take out loans, or sell breast milk to come up with the funds. Those are just some of the allegations made in a class-action lawsuit filed in California Monday, which follows a separate suit filed in the state on Oct. 13. It accuses LuLaRoe of operating a "pyramid scheme," with much of the company's $1 billion in sales last year coming not from buyers but from 80,000 sellers, often moms, who are told to keep $20,000 in inventory and "inundated with the phrase 'buy more, sell more,'" report Law360 and BuzzFeed News.

Though "destined for failure" because of a flooded market, consultants at the bottom of the pyramid are taught to expect "part time work for full time pay" but "aggressively pressured to continue purchasing wholesale inventory even when the inventory they have is not selling," the lawsuit states, per AL.com. When merchandise does sell, consultants are encouraged to buy more product with the profits, chasing free cruises and other perks, the lawsuit adds, claiming some were left "in financial ruin." The lawsuit filed on Oct. 13 claims at least one seller who tried to return merchandise for a full refund was told "at best she would get 90%" and that only "certain clothing, purchased at certain times … in a certain manner" was refundable. LuLaRoe hasn't addressed the lawsuits' specific allegations but tells BuzzFeed its return policy is "generous."

Pyramid schemes however "may purport to sell a product, but they often simply use the product to hide their pyramid structure".

doug bishop

Oct 26, 2017 5:09 PM CDT

pyramid scheme a form of investment (illegal in the US and elsewhere) in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones.